How Financial Planning Can Help You Make Life-Changing Decisions

As the Greek philosopher Heraclitus identified more than two thousand years ago, the only thing that is constant is change.

When it comes to your finances, money supports or enables many of life’s big changes.

As a teenager, money in your pocket gives you the independence you seek. A job lets you rent or buy a home, start a family, and settle down. And, in later life, money enables you to do all the things you want, from retiring early to travelling the world.

While change can be frightening or intimidating, it also brings great opportunities.

Good financial planning can give you the confidence to make sometimes significant changes to your life. We’ve previously looked at how we can help you to retire early – one of life’s major transitions.

Now, read on to find out more about how financial planning supports and enables you to live the life you choose.

Covid-19 may have led you to rethink your plans

Change typically comes in one of two ways:

• Proactive – you decide that the time has come to change jobs, move home or start a family
• Reactive – external events or changes in your personal circumstances force a change.

In the last few months, external events have caused many thousands of people to rethink their plans. According to the latest Financial Lives survey published by the Financial Conduct Authority, three in five people who retired between March and October 2020 did so because of Covid-19:

• Three in five (58%) who retired in the first six months of the coronavirus pandemic had not planned to retire
• Nearly one in four (23%) did so because they lost their job
• 9% did so because they needed to shield
• 6% retired due to sickness or ill-health
• One in five people (18%) retired because the pandemic made them realise they wanted a change (18%).

The pandemic may have also accelerated other plans you had. Perhaps you have realised that you’re not happy in your job, and working remotely has magnified this ennui?

Conversely, perhaps your business is booming and you’re considering expansion, or putting off your retirement as you’re enjoying this new challenge.

And perhaps you’ve decided you want to move home? If you no longer need to commute to the office every day, perhaps you want to join thousands of Brits who are moving out of big cities to smaller towns or more rural areas, in search of a bigger home, a home office, and a large garden.

Life-changing events can all have financial implications

Charles Darwin wrote: “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”

Having a plan in place gives you the freedom and confidence to make decisions when you face important life events. But what are these events?

Having a child

The Child Poverty Action Group (CPAG) say that, for a couple, the basic cost of raising a child to age 18 is more than £71,000.

In addition to this, you may also want to pay for private education, help them onto the property ladder in adulthood, or leave a legacy to them when you’re no longer around.

Changing jobs or career

If your salary has increased, how do you make the most of this additional income? Pay off your mortgage? Boost your pension savings?

If you do decide to increase your pension contributions, could you be in danger of exceeding your Lifetime Allowance?

And what about your employee benefits? Will you still receive the same benefits at your new employer, or will you have to replace these privately?

Conversely, you may want to retrain or start your own business, in which case your income might fall for a period. Can you still maintain your lifestyle on a lower income?

Moving Home

While we may be moving home less than we used to, buying and selling a home is still a major event. You may be moving to take on a new job, because you’re separating or divorcing (see below) or, perhaps, because your children have left home and it’s now time to downsize.

Whatever the reason, there will be financial implications.

Divorce or separation

This can be an emotional time and so it’s easy to make rash financial decisions. There will be plenty to consider, including the potential sale of your home and the division of any other assets.

How will you provide for children? Do you need new protection for your family?

And what about your pensions? Can these be shared or split and, if so, will you need to make additional pension provisions?

Retiring early

As we have seen above, the pandemic has forced many people to rethink their plans. You may have decided that you want to retire now – but can you afford to do so?

Our longer article – Can I retire early? – may help you here.

Whatever your plans, significant changes often come with one key question: can I afford it?

Putting a financial plan in place is the first step to success

Our financial planning doesn’t start with a list of your assets or expenditures. It begins with finding out what’s most important to you in life, and why. Typical answers include:

• I want to be my own boss
• I want to spend my time doing the things I want
• I want to spend more time with my family
• I want to travel
• I want to be financially independent.

Our job is to help you to identify, achieve and maintain your desired lifestyle, without the fear of running out of money, whatever happens.

We’ll start by looking at where you are today, and where you want to be in the future. That could be:

• In the near future – can I switch jobs, am I okay to gift money to my daughter or son now, or can I move home next year?
• The far future – can I retire at age 58, pay for later-life care, or leave a legacy to my grandchildren?

We’ll then put together a financial plan that helps you get there, considering any barriers that might stop you from achieving your plans. We’ll then work closely with you to set up the actions you need to take to achieve your goals.

Reviews are then crucial to ensure you remain on track (more about this in a moment). And our regular “life goals versus action” reviews help make sure that your actions are aligned with your goals.

Financial modelling gives you the confidence to make changes

One of the main ways we can give you the confidence to make significant changes is through our financial modelling process.

To build a great financial model, we’ll consider how you want to live, your lifestyle costs, planned expenditures, assets and liabilities. We’ll then assess this position against your short- or long-term goals.

We use sophisticated software to establish whether you have “enough” to make the change you desire.

For example, when it comes to changing careers or retiring early, we can establish the point of financial independence – the moment when you have enough capital to maintain your desired lifestyle for the rest of your life, whatever happens, without the fear of running out of money.

Seeing your financial future on a screen in colour is genuinely transformative (and it’s so much more impactful than a spreadsheet!). It can help you maintain a focus on what you need to do to achieve your objectives, what you need to do to mitigate any risks, and whether you can retire earlier, move home, gift money, or make that dream purchase.

Putting contingency plans in place to deal with reactive changes

As we saw earlier, some changes arise through events out of your hands. The last twelve months have shown us that unexpected disruption can happen at any time – to your health, your employment, or your plans.

A period of ill health, new children or grandchildren, an economic downturn, stock market volatility, and redundancy can all force you to change your plans at short notice. And while financial planning might not be able to predict or prevent these events, it can prepare you for them.

• Putting the right protection in place means you benefit from financial support when you need it. This could be anything from life insurance to shareholder protection; from critical illness cover to key person insurance. The key is to make sure you mitigate the specific risks to your lifestyle and future plans.
• Ensuring you have a contingency fund in place means you have cash to fall back on in an emergency. The last year has shown how critical it can be to repair the roof while the sun is shining, and ensure you have 6 to 12 months’ income set aside in an easy-access account for when you really need it.
• Financial modelling can help you to make plans following redundancy. You’ll be able to see at a glance whether you have “enough” to stop working now, or what steps you need to take to ensure you can achieve your life goals and ambitions.

So, you’ve put a plan in place to help you manage change and achieve your life goals. The final step is to make sure you regularly review that plan.

Reviewing your plan regularly ensures you’re always on track

We don’t design a financial plan to be set in stone. It should evolve as your life and circumstances change and adapt to take account of the changes that will happen in your life.

So, it’s vitally important that we review your plan regularly.

Major life changes are the perfect time for a review. Marriage, divorce, new children or grandchildren, a career or job change, illness, or moving home are all great opportunities to review your plan and make sure you’re still on track.

Even if everything is calm, an annual review enables you to reassess your priorities, check on the progress you’re making towards your goals, and make changes as appropriate.

Working with a financial planner gives you security, peace of mind, and confidence

Sometimes, partnering with a financial planner is simply about having a professional you can call on when it comes to helping you with life choices. We can be your sounding board and help you decide whether it’s financially viable to make the changes you want.

While there has been much research on the “pounds and pence” value of working with a financial planner, recent research from the insurer Royal London underlined the emotional benefits.

Their study found that people who took financial advice were more confident about the future, more in control of their finances, and much less worried about their ability to cope financially when they retire.

Source: Royal London

In addition, clients who form a long-term relationship with their financial planner feel even more in control and prepared than clients who seek infrequent advice.

Source: Royal London

This underlines the need for regular reviews. Developing a long-term relationship with your financial planners makes you more confident in your financial plans and more in control.

Find out how we can help you manage change in your life

We’ve established that many of the big changes you might want to make in your life boil down to a simple question: can I afford it?

As financial planners, we’re ideally placed to help you answer that question.

Sometimes you might know the answer – yes, you can! – but just need someone to run the numbers and give you the confidence you need to take the leap.

Other times, it may not be that simple and there may be work to do if you want to achieve your goals.

Either way, our approach is designed to help you get the most out of life.

Email hello@firstwealth.co.uk or call 020 7467 2700 to find out more.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.